Although a spike in COVID-19 cases has raised concerns about the restaurant industry’s prospects, it is highly unlikely that the sector will witness the same scenario it faced last year. That’s because government agencies this time are striving to curb the rapid spread of the new coronavirus strain by recommending booster shots and imposing new-normal restrictions. Furthermore, according to data released by the U.S. Census Bureau, the total sales of eating and drinking places for July stood at $72.2 billion, which is 9.1% above February 2020 (pre-pandemic) sales volume.
Because consumer demand has heightened the industry’s need for workers, the restaurant industry added a net 253,200 jobs in July and 1.3 million jobs in total in the past seven months. The industry’s growth will likely continue in the coming months on the back of strong discretionary spending and pent-up demand for socializing and out-of-home experiences.
Therefore, we think under-the-radar restaurant stocks Bloomin’ Brands Inc. (BLMN), Denny’s Corporation (DENN), Nathan’s Famous Inc. (NATH), and Potbelly Corporation (PBPB) could be great investment bets now because they are fundamentally well-positioned to cash in on the industry’s growth.
Bloomin’ Brands Inc. (BLMN)
BLMN, through its subsidiaries, owns and operates casual, upscale casual, and fine dining restaurants in the United States and internationally. The Tampa, Fla.-based restaurant’s portfolio includes Outback Steakhouse, a casual steakhouse restaurant; Carrabba’s Italian Grill, a casual Italian restaurant; Bonefish Grill, a casual seafood restaurant; and Fleming’s Prime Steakhouse & Wine Bar, a contemporary steakhouse.
During the second quarter, ended June 30, 2021, BLMN’s revenue increased 86.3% year-over-year to $1.08 billion. The company reported $124.64 million in operating profit, versus a $111.91 million operating loss in the prior-year quarter. Its net income came in at $82.55 million for this period, compared to a $92.26 million net loss in the second quarter of 2020. Its EPS totaled $0.75, compared to a $1.05 loss per share in the prior-year period.
A $2.79 consensus EPS estimate for the current year represents a 504.3% improvement year-over-year. Furthermore, BLMN has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. A $4.2 billion consensus revenue estimate for the current year represents a 32.5% increase from the same period last year. BLMN’s stock has gained 101.3% over the past year and 28.8% year-to-date.
BLMN’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
BLMN is also rated an A for Growth and Value, and a B for Momentum. Within the A-rated Restaurants industry, it is ranked #4 of 45 stocks.
To see additional POWR Ratings for Stability, Quality, and Sentiment for BLMN, click here.
Denny’s Corporation (DENN)
DENN, in Spartanburg, S.C., owns and runs full-service restaurant chains through its subsidiary. As of June 24, 2021, it had 1,649 franchised, licensed, and company restaurants worldwide. The company is known for keeping its stores open and serving breakfast, lunch, and dinner around the clock.
In June, DENN announced that it was willing to hire 20,000 restaurant-level staff at both company-owned and franchise-operated locations across the United States. In addition, the company plans to launch America’s Diner Hiring Tour and a brand-new website, Careers.Dennys.com, for job seekers to use as part of its countrywide America’s Diner Hiring Event. It aims to assist all job seekers, regardless of their level of experience, professional field, or background.
DENN’s revenue increased 164.4% year-over-year to $106.17 million in the second quarter, ended June 30, 2021. Its operating profit came in at $18.29 million, versus a $13.53 million operating loss in the prior-year quarter. The company reported a $17.80 million in adjusted EBITDA for this period, compared to a negative adjusted EBITDA of $11.51 million in the second quarter of 2020. Its cash and cash equivalents increased 179.6% year-over-year to $10.88 million.
The company’s EPS is expected to grow 525% year-over-year to $0.51 in its fiscal year 2021. Analysts expect DENN’s revenue to increase 42.4% year-over-year to $411.08 million in the current year. The stock has surged 47.3% in price over the past year and 39.2% over the past nine months.
DENN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. DENN also has a B grade for Momentum and Quality. The stock is ranked #22 of 45 stocks in the Restaurants industry.
Beyond the POWR Ratings grades we have just highlighted, one can see the DENN ratings for Growth, Value, Stability, and Sentiment.
Nathan’s Famous Inc. (NATH)
Jericho, N.Y.-based NATH owns and franchises restaurants and sells products bearing its trademarks through various channels of distribution. In addition, it has license agreements for the manufacture, distribution, and marketing of its branded products in refrigerated consumer packaging, which are resold through retail channels, such as supermarkets, groceries, mass merchandisers, and club stores.
During the first quarter, ended June 27, 2021, NATH’s revenue increased 77.1% year-over-year to $31.32 million. Its operating profit grew 32.2% from its year-ago value to $10.70 million. The company’s net income increased 44.1% year-over-year to $5.76 million. In addition, its EPS increased 44.3% year-over-year to $1.40 over this period. The stock has gained 33.1% in price over the past year and 25.9% so far this year.
It is no surprise that NATH has an overall B rating, which equates to Buy in our POWR Ratings system. NATH is also rated an A grade for Quality, and a B for Sentiment and Momentum. Within the Restaurants industry, it is ranked #7 of 45 stocks.
Click here to see additional POWR Ratings for Growth, Value, and Stability for NATH.
Potbelly Corporation (PBPB)
PBPB, through its subsidiaries, owns, runs, and franchises Potbelly sandwich restaurants in the United States. The company operated approximately 400 shops and 46 franchisees in the United States as of December 27, 2020. PBPB is based in Chicago.
For its second fiscal quarter, ended June 27, 2021, PBPB’s revenue increased 73.6% year-over-year to $97.49 million. The company reported an adjusted EBITDA of $1.93 million, versus a negative adjusted EBITDA of $14.39 million in the prior-year quarter. Its net sandwich shop sales rose 73.2% from the prior-year quarter to $96.78 million over this period.
Analysts expect PBPB’s revenue to increase 27.8% year-over-year to $372.33 million in its fiscal year 2021. In addition, the company’s EPS is expected to grow 74.7% in the current year. The stock has gained 73.4% over the past nine months to close its last trading session at $65.15. Over the past year, the stock has gained 53.9% in price and has gained 52.5% year-to-date.
PBPB’s POWR Ratings reflect this promising outlook. The stock also has a B grade for Momentum and Sentiment. In the Restaurants industry, it is ranked #24 of 45 stocks.
In addition to the POWR Ratings grades we have just highlighted, you can see the PBPB ratings for Growth, Stability, Value, and Quality.
BLMN shares were trading at $24.11 per share on Thursday morning, down $0.91 (-3.64%). Year-to-date, BLMN has gained 24.15%, versus a 17.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More…
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